MMRCDISCUSSION PAPER SERIES
No. 450

Supply Chain of the Transportation Industry and
Network Building Strategy
Ryosuke Sugie
Technological Development of Information-processing
Young Won Park
Manufacturing Management Research Center
Graduate School of Economics, The University of Tokyo
September 2013

東京大学ものづくり経営研究センター
Manufacturing Management Research Center (MMRC)
Discussion papers are in draft form distributed for purposes of comment and discussion. Contact the author for
permission when reproducing or citing any part of this paper. Copyright is held by the author.
http://merc.e.u-tokyo.ac.jp/mmrc/dp/index.html

Supply Chain of the Transportation Industry and
Network Building Strategy
Ryosuke Sugie
Technological Development of Information-processing
E-mail: rsk.sugie@gmail.com

Young Won Park
Manufacturing Management Research Center
Graduate School of Economics, The University of Tokyo
E-mail: ywpark@mmrc.e.u-tokyo.ac.jp

Abstract: The main goal of this paper is to examine the trucking businesses that haveestablished a competitive advantage over other companies in Japan. We hypothesize that
network building capabilities by discrimination of transaction methods are related largely tothe ratio of sales and market share of the Japanese trucking business.
In general, the terms utilized by transaction companies have been applied to the trucking
business in this paper. The analogous terminology for the trucking industry is that the B2B ismass cargo delivery to another company from the corporate consignor, B2C is small cargodelivery to consumers’ shipper from the corporate consignor, and C2C is small cargodelivery (courier services) to general consumers from general consumers by trucking
company. Based on the transaction system, we analyze each business model for the trucking
industry.
For this, we examine a comparative analysis between major trucking businesses in Japansuch as Nippon Express, Fukuyama, Yamato Transport, and Sagawa Express and thedifferences among transaction systems were classified. The features of the network
business in the trucking business and differences of profitability within these systems are
discussed.
Key Words: Supply chain management, Network building strategy, Transportation industry,
Transaction methods
1

Sugie・Park

1. Introduction

If a “manufactured product” does not move naturally, then either factory or
customers need to move. According to the 2011 logistics cost survey questionnaire ofJapan Institute of Logistics Systems, there was a "review of the logistics base" andthere were a lot of answers concerning logistics cost reduction measures. Based on
this survey, sales logistics cost ratio was 4.9 percent in all types of industry. It
indicates that the cost of pay-to-full-time workers accounted for more than half ofthe distribution costs.
We will discuss the transportation needs of the enterprise level business where
punctuality and quality of service are critical. In particular, for high mobility,
logistics focuses more on trucking businesses and consequently 3PL (Third Party
Logistics) from the supply chain and logistics perspective (Japan Trucking Association,2012). Therefore, we will be concentrating on the business model of trucking businesses
and its underlying role downstream in supply chain "logistics".
Currently, the rising oil prices due to the rapid depreciation of the yen and theglobal economic downturn, have resulted in a domestic production decrease.
Consequently, even though there was an excess of 14 trillion yen in the market forJapan’s trucking industry in 2008, Japanese companies experienced a reduction inmarket funds of 11 trillion yen. This was due to a decrease in domestic production
and a global recession (Japan Trucking Association, 2012).
Since then, there has been a drastic change in the trucking industry and the market
became saturated with it. However, Yamato Holdings and SG Holdings, now holds amonopoly on the market of courier services. The main goal of this paper is to examine
the trucking businesses that have established a competitive advantage over othercompanies. We hypothesize that network construction capabilities by discriminationof transaction methods are related largely to the ratio of sales and market share of
the Japanese trucking business.
In general, the terms utilized by transaction companies have been applied to thetrucking business in this paper. These include transactions conducted between
companies and general consumers (Business to Consumer, B2C), transactions between
2Supply Chain of the Transportation Industry and Network Building Strategy

companies and companies (Business to Business, B2B), and transactions between general
consumers and general consumers (Consumer to Consumer, C2C). The analogous terminology
for the trucking industry is that the B2B is mass cargo delivery to another company
from the corporate consignor, B2C is small cargo delivery to consumers’ shipper fromthe corporate consignor, and C2C is small cargo delivery (courier services) to general
consumers from general consumers by trucking company. Based on the transaction system,
we analyze each business model for the trucking industry. Analyzing the logistics ofcase companies will enable us to examine the business logistics of Japan as a whole.
Subsequently, the results can be later expanded upon for application to the national
trucking industry.

2. Literature Review
2.1 History of the transportation industry

There has also been a modal shift after the World War II. During the high economic
growth of the 1960s, with an increase in mass production and mass consumption, larger
vehicles and development of road infrastructure (highway construction) were made.
Japan’s transportation industry began to shift away from a railway centered industry
towards a truck centered industry for transporting cargo. Special loading trucks
transported and delivered a mixed cargo door-to-door. The former "line service" hasplayed a role in the promoting the evolution of Japan’s transportation industry (Ooya,
2005).
In 1955, transportation was comprised of 53 percent railway (JNR) for domestic
shipping, which was only 36% of Japan’s total rail system and 12 percent of the overall
ton-kilometer-based domestic cargo transport. 31% share in the railway, 43% domestic
shipping, and 26% track in 1965 of 10 years later, truck transport volume was 48.4
billion tons. Around 1975, the track has surged to 129.7 billion tons of 36% share
whereas the share of railway dropped to 13%,.
However, currently high economic growth is slowing down and the economy isexperiencing a great downturn. Commercial cargo for B2B was the mainstream trucking
practice. However, in 1976 Yamato Transport began providing "courier service." Until
this point, only the post office had been doing so. The Transport Services based on
3

Sugie・Park

consumer transactions of C2Calso began. Yamato Transport has innovated the trucking
business. The performance result proved that shares of trucking were varied greatly,and some companies had not been able to make a profit until now. The transaction system
of C2C caused the market shares to grow significantly.
In

addition,

since

1998,

it

handledmainlyconsumertransactions(business-to-consumer). Major changes that occurred in the trucking business
transactions in terms of B2C, and C2C were due to the development of e-commerce. Thesechanges began to appear in a number of courier services handling these transactions.
10 years later, 3197 million parcels were delivered in 2008. Previously the numberof courier service was 1833 million parcels in 1998. However, this number has now surged(Mori, 2006). Carrying out delivery to other parties has been leading the trucking
industry. SG Holdings and Yamato Holdings have been overwhelmed by handling C2C courier
services.
In recent years, a few issues in the trucking business, such as traffic congestionand environmental issues have been raised many times. During the Great East Japan
Earthquake that occurred on March 11, 2011, the logistics for supplying necessary
lifesaving goods to consumers and critical supplies to enterprise companies wasstrongly tested. The importance of the supply chain via the trucking industry waspractically reviewed during that desperate time.

2.2 Research on network construction and supply chain of transportation industry.

Network construction due to the difference in transaction method tackled the issues
that differentiate the trucking business from other transportation methods in Japan.
Thus we chose to discuss the network construction capabilities in this paper. Since
there are network features in the trucking business, we tried to particularly examine
the network construction theory through case analysis.
Generally, for more than one individual or group, an organization plays a common
specific purpose. While mediating the social network beyond the boundary of theorganization, the network organization is coupled vertically and horizontally. It issaid to be a form of organization that can function with a decentralized
decision-making structure or to be relatively autonomous (Wakabayashi, 2009).
4

Supply Chain of the Transportation Industry and Network Building Strategy

On the other hand, in view of the network construction theory in terms of a social
structure, a key individual plays a role of mediator in the relationship of the people.
People would lose the connection in the social structure, if it were not for thisintermediary. Burt (2001) referred to this intermediary as a structural hole. Profit
and control of information obtained from the network-rich structural holes arereflected in the innovation. Profitability is determined not only by human capitaland financial capital, but by whether or not you are connected to the social network.
In addition, if you have a preferred social network, it is possible to effectively
control the information, or increase the "opportunity" for profitability (Rost, 2011).
These topics will lead to the discussion of complementary assets. Teece (1986)
discusses

theconceptofsustainable

innovation

in

the

most

successfulcommercialization. There is a comparative relationship between complimentary assets,
and capability and resources of know-how. For example, an information channel isrequired for commercialization of new pharmaceutical products. Also some computercompanies want to take software content, such as OS, application software and gamecontent as their complementary assets. A good example showing that the failure toacquire complementary assets leads to the demise of a company was Sony’s victory oftransistor radio over the United States electronic company, RCA. RCA relied heavily
on technology license revenues from the Japanese company Sony. However, Sony soughtto acquire complimentary assets of manufacturing and cheap labor cost. RCA failed
because they didn’t obtain the complementary assets of manufacturing capability,
where as Sony became a global competitor.
Kim and Mauborgne (2005) and also Porter (1980; 1987) mentions the importance ofcomplementary assets and complementary goods. As one of the risk avoidance strategies
for the concept of value innovation strategy, they propose the blue ocean strategy
to achieve this. They have suggested avoiding Search Risk by using specific techniques;(1) look to the industry to provide alternative services and alternative materials,(2) oversee the strategy of various groups, (3) look to the difference in theconventional buyer groups, (4) oversee the complementary services and complementary
products, (5) question the sensibility rational or functional rational and (6)lengthen the time axis.
In this way, network construction can be a decisive factor of the most important5

Sugie・Park

strategy to acquire complementary assets. This established the sustainable
competitive advantage of the company. On the other hand, value was created throughopen process, such as the network feature of having public goods (Chesbrough, 2007).
It is considered as a concept similar to the so-called public infrastructure. The valueof openness can be seen by network effects (Chesbrough and Appleyard, 2007). The
conventional theory of point ownership due to the internal network construction
enterprise has been the focus of the main discussion. The barriers to entry, switchingcosts, and inter-industry competition of public goods in an open network areparticularly difficult. In other words, earning value generated from innovation bycompanies lead these companies to claims rights to intellectual property (Park andHong, 2012).
However, the substantial portion of the value that is generated does not go into
the hands of individual companies. Therefore, it is important to acquire the valuethat has been created by open innovation. The architecture of network constructionis the bases to bring together knowledge that is scattered. Furthermore, if there isno judgment on how and whether the system is sufficiently operated as open knowledge
source, then the system will not be able to provide a useful solution. Therefore, thestrategically important point in an open innovation network is the ability to adjust
to individuals and communities, without alienating members of the Ecosystem further.
This further creates value acquisition that lasts. This approach will be applied toconsider the role of the network in the supply chain of the transportation industry.
As mentioned above, when examined from the point of view of sociology, people lose
their ties in the social structure if there are no intermediaries. Likewise, if there
is no intermediary (network that mediates) some companies’ "products" are not able
to move. They cannot simply go out in the world by themselves and manufacturers alsoneed to make profit. The intermediaries of the trucking business and transportcompanies in Japan are discussed in this paper.
The trucking industry has a different "base network" from other companies. However,they have a similar characteristic to the "social network.” Particularly, B2B
operations are quite similar to social networks in regard to the format of carryingout transactions; the timing and frequency of sharing information between companies;
also in terms of the form and amount of incoming and outgoing information, etc. On
6Supply Chain of the Transportation Industry and Network Building Strategy

the contrary, once selected, the network format and style of the exchange of
information allow for the consideration of changes in transaction structure andcompetition patterns. It is believed that by this network of e-procurement system,
the format of the transaction will continue to have co-evolution through the dynamic
interaction (Oh and Fujimoto, 2001).
After the E-procurement network has been selected, it is believed that thetransaction structure is gradually changed. It will continue to co-evolve through theprocess of dynamic interaction. Likewise, it is possible to apply a similar concept
to the trucking business. Historically, in the case of trucking industry, it wasobserved that after the transaction type is selected, the network construction is
gradually changed. This was evident in cases where certain features of the network
structure were present in specific transaction systems.
The research on network construction of trucking business used the case analysis
of a typical courier service business, Yamato Transport (Amikura, 2009; Amikura andShintaku, 2011). By examining Yamato Transport, we were able to record a profit in
the private courier business which was contrary to common sense in that industry at
the time. This company had to be considered as a large "network business" courier.
According to the analysis by Amikura and Shintaku (2011) of Yamato Transport, some
may want to know what to do in order to secure profits in the network business. They
found that the network business is time-consuming to implement and expensive to build
a collection of delivery networks nationwide. It requires significant capital
expenditures to start such a business. Even after it is completed, the cost of
maintaining the pickup network nationwide also continues to occur. Since themaintenance cost will occur in the network, a potential increase in product carrying
may hint that maintenance could increase as well. However, even if product carrying
does increase, it will not be a great increase. Therefore, if it is possible to increase
sales by developing the latent demand, it is possible to recover the operational costs
for network maintenance and initial investment for network construction and make aprofit.
However, the research by Amikura (2009) focusing only on the analysis of the courierbusiness of C2C is used in this paper. This paper focuses on using it to compare network
construction strategy of the transportation industry to C2C from B2B.
7

Sugie・Park

3. Case Study

This chapter deals with features of B2B, B2C, and C2C and will continue to analyze
the cases of successful companies’ transaction methods. It began as a national policy
concerning quickly building B2B network abroad. Nippon Express operating income is
one place in the trucking business of concern currently. Fukuyama Transporting grewfrom a small local company by constructing a network across the country. An exampleof the transaction system of B2C, ranked second in home delivery market share is SG
Holdings (Sagawa Express). This company grew to its present size from an Express
messenger company. We will present an analysis of Yamato Holdings (Yamato Transport),
one courier which brought innovation to the C2C trucking business. The analysis on
this company will be centered on three aspects of the framework; (1) How it has grown,(2) Building of a network and (3) Future Development to deal with each method.

3.1 Analysis of business-to-business case
3.1.1 Features of business-to-business case

B2B, and the like, as a transaction system in the trucking business, has been themainstream for a long time. A similar business model has to be built to meet the corecompetencies of each Sagawa Express and Yamato Transport in the B2C, C2C and B2B.
In the case of commercial cargo handled in B2B, delivery occurs every day to fixedlocations. This is easily characterized by some degree of demand forecast. But, ademand forecast for the decline in the level of service is not possible in the network
structure if delivery to customers. Prediction of efficiency and generating profit
is also not possible. In a case of B2B transport, where the baggage is one less thanusual, it is easy to evaluate efficiency of transport. However, in the case of delivery
to an individual it is not easy to accurately analyze how efficient it is to performthe work every day (Ogura, 1999). Furthermore, correspondence to each shipper can becharacterized by types of transactions systems that are easy to build into a 3PL. On
behalf of shipping companies, 3PL proposes the construction of the logistics systemand planning of the most efficient logistics strategy (Yuasa, 2008). The benefits of8

Supply Chain of the Transportation Industry and Network Building Strategy

building a 3PL is for an expansion of revenue. It is the acquisition of new shipping
companies that lead to the expansion of the business scope. By introducing andincreasing the proportion of cargo handling shippers, a company can thereby maintainand improve the growth potential, and improve profitability. This can also be expectedwith an increase in the accumulation of know-how and cost reduction, through joint
use of warehouses and joint delivery.
Since it is beneficial to set up a bulk trustee framework to share information andshippers business, it leads to an arrangement of stable revenue because trust isestablished for a long period of time (Terada, 2010). From the fact that small-lot
proceeds in B2B market of business-to-business, quick delivery was to be required,
and the courier came to be more widely used. B2B also requires the shipper to makejust-in-time deliveries. This leads to a continuation of building a more efficient
network of correspondence (Japan Trucking Association, 2012).

3.1.2 Nippon Express Co., Ltd.

Nippon Express Co., Ltd. began with the name suggested as "Land based company" in
1872. Then it was reborn as a national policy company in 1937, and listed on stocks
in 1950. After establishing an office in New York in 1958, it started to dispatch
personnel in regions abroad to great "hubs" in places such as London, Amsterdam, Hong
Kong, and Singapore. This allowed the company to build an international network(Ishikawa et al., 2003). Nippon Express is a logistics leader in Japan and is currently
a leading company in the trucking business. Nippon Express has expanded immensely interms of initiate performance to its present state. This is noted in the "Pelican Bin(Delivery), BOX Kantanbin" in 1977, until the 1990s in the service center at the "Arrow
Bin (Delivery)". It is true that in the development process of Nippon Express courier
service a significant role was played by "Pelican Bin (Delivery)" and the "Arrow Bin(Delivery)" to become industry-leading today.
Nippon Express is a company which underwent express development and quickly became
skilled in the art of shipping. The company was originally good at large enterprisecargo transport. It can be said that the rapid economic growth of Japan is responsible
for the Package Contractors logistics and manufacturing industry. It had begun early9Sugie・Parkin the trucking industry as "3PL.”
For such manufacturing industries in Japan which have advanced abroad, we have put
the emphasis on international transport operations. The main company for examination
will be the Center of Nippon Express, which also expanded abroad. Overseas expansionof Nippon Express was very fast, even compared with other transportation business.
It can be said that we have to build a global transport network in such a short time.
As an expert to analysis of "Nippon Express” says that it is strong in internationaltransportation and B2B logistics", there are many core competences of Nippon Express
that helped it has continued economic growth in the field of B2B and internationaltransport. It can be said that it was a courier handling a number of small cargo, andhas grown rapidly since 2000. Among the prominent competitors, the two companies,
Sagawa Express and Yamato Transport, Nippon Express is largest. "Pelican" has taken
the third place since 2009. It can be seen that the B2C also had increased sales as
well.
But "Pelican Flight" Nippon Express has cast share rapidly from 2009. Nippon Express
was separated from the business of other courier in the late 1990s. It has proceededin courier service, but has reorganized into "specialization parts" the 2000s(LOGI-BIZ, 2001).
In recent years, it has established a company to integrate the courier and postal
services, such as JP Express Co. However, integration was postponed and it became aform of Postal Service take over. The home delivery business of Nippon Express
challenged the postal service. Disconnecting the transaction system of B2C byeliminating a home delivery service of Nippon Express, the "Pelican Bin" took B2B asa core competence of the company. This strategy focused on international cargo trade,and the trucking business proved to provide the greatest operating revenue.

3.1.2 Fukuyama Transportation Co., LTD.

Fukuyama Transporting Co., Ltd. is a logistics company headquartered in Fukuyama
City, Hiroshima Prefecture. In 1948, it took over the facilities of Fukuyama branchesof shipping company when it went out of business. It was founded as Fukuyama Cargo
Transport Co., LTD and it attracted the attention as emerging from the Land Transport
10Supply Chain of the Transportation Industry and Network Building Strategy

company that was focused on small cargo transport using tracks. It established anational transportation network in 1994, and is in possession of a network base oftrucking across the country.
By performing a comprehensive business alliance with Hitachi Transport System
Ltd the most competitive leader in information systems, and utilizing a more robusttransportation network across the country, Fukuyama Transporting increased sales in
1999.
The company deals with logistics of famous enterprises like Daisosangyo and Fast
Retailing (Hashimoto, 2010). Fukuyama Transporting Co., Ltd. has been dealing witha lot of small cargo historically. It is a trucking business that is active in thetransaction system of the B2B, which is similar to Nippon Express. As mentioned above,by partnering with leading companies such as Fast Retailing and Daisosangyo, it waspossible to obtain a benefit of B2B, a stable income, and has made sales of the top
10 in the transportation industry. The network construction of Fukuyama features fromlocal companies that are different than what is in Yamato Transport and Nippon Express.
The nationwide network of Fukuyama Transporting is built up of subsidiaries and a main
body. This construction method is similar to the construction method of Sagawa Express.
The acquisition of the transportation industry in each region has established the nameof Fukuyama as a strong competitor in the market. It benefits from shipping without
the need to build a new network in a specialized area, and this compensate for the
shortage of human resources. Also, by absorbing other companies’ core competences,
it is able to develop new services. An example of a subsidiary is Kinukawaya
transportation which was established in 2012. It is its own delivery network in theTokyo metropolitan area, and expands the company to the joint delivery of mainly
food-related cargo. Kinukawaya transportation has its own warehouse, and uses it in
response to storing hazardous materials at room temperature, and specialized cargorequiring refrigeration. These privileged services are in several locations, such as
Koto-ku and Tokyo. It also developed a wide range of business activities such as
performing logistics for other businesses. By mergers and acquisitions of thesecompanies, the companies have quickly built their networks cheaper and faster thantheir predecessors. In recent years, it has developed an EC site such as"Ajinohurusatobin" to its main site in order to widen the transaction system of the11Sugie・Park

B2C. By partnering with companies on products, it has implemented a service delivery
fee. At present it only supports credit card transactions, and delivery typically takes
about one week after the initial order is made. This shows that challenges do remain,
but it does not have the business development challenges in term of transportationthat other business may have. They are able to use their EC site to maketheir owntransportation service. In this way they build an area of B2C, to expand into newtransaction system from B2B.

3.2 Analysis of B2C transaction case
3.2.1 Feature of B2C transactions

Expanding EC market shows continued growth. B2C has emerged as a new transaction
method for transportation companies that support them. In the future, B2C is noted
as a transaction method that can be expected to grow the most in the trucking business.
The method of B2C includes the advantages and disadvantages of C2 C and B2B. In B2C,
the collection location has been decided, but the shipping location is unspecified,
which is a clear disadvantage of the method. Secondly, in C2C transaction method asmall quantity of products is being transported and there is an unstable income.
However in the transaction of B2B, a large quantity of products are being transported
and there is a stable income via a contract. In the long run, B2C will have these two
aspects as well. Investment needs are high in order to realize the service for customers.
The investment in the pickup location can be controlled, however the high investment
occurs on the customer service end because the delivery locations are unspecified andnumerous. Furthermore, distributers began to request that the trucking company provide
high-frequency of small-lot deliveries for purchases made via e-commerce. As a result,the profits of the trucking companies were reduced drastically.
Number of trucking companies playing the role of sellers is greater than that of
distributers playing the role of buyer. More buyers (distributers) have a stronger
position than sellers (trucking companies) in the logistics industry (Tamura, 2004).
The quantity of products transported in B2C transaction method shows potential
increase in the future which means a potential lower transporting cost. However, that
economy of scale does not work as expected. Trucking companies believe they would
12

Supply Chain of the Transportation Industry and Network Building Strategy

obtain a stable income when partnering with other leading companies. However, that
benefit will not be realized because distributing companies request discount. It is
know that the more distributers become the leader

the stronger the industry becomes.

3.2.2 SG Holdings (Sagawa Express)

In 1957, based mainly in Kyoto and Osaka, Mr. Kiyoshi Sagawa, founded and established
Express Messenger Industry. Then in 1966, he founded the Sagawa Express. However in
1998, it officially changed its business description from a specialized cargo delivery
company to a home delivery company as an "express messenger service.” Soon thereafter,
it became the second in the home delivery industry, following Yamato Holdings(Hashimoto, 2010). Like other trucking business companies, Sagawa Express has also
attained growth in the B2B trucking industry. Sagawa demonstrates two B2B featuresthat are beneficial. First, it expands the services that are specific to the needsof the distributors. Second, it has grown and evolved from a simple trucking company
into a comprehensive delivery service company that handles all logistics for producttransport.
Many corporations need similar small products related to the business of each company.
These products are often very necessary and are usually needed in a hurry (e.g.
important documents, clothes and machinery). These deliveries are typically small
quantities of multiple items that take time and effort. Therefore, the time value of
urgency is more emphasized by the corporation over the cost of delivery. Utilizing
the elements of "urgency and reliability,” trucking companies manipulate target
corporations for higher delivery service fees. In this sense, small cargo businessis comprised of commercial cargo and home delivery (Kimoto et al., 2001). A typicalexample is the apparel industry service. One trend of the apparel industry is deliveryof products from manufacturer to retailers without packaging. Items are transports
and delivered on hangers. This shortens the production and sales cycle, as well as
increases the production quantity. As a result of this new trend, Sagawa trucking
company now provides storage, packing and delivery services. Copping with customers’
needs flexibly, Sagawa achieved a high performance record in the courier business.
In Japan Sagawa achieved the titles “mule” and “handyman" based on their performance13

Sugie・Park

for the emergency cargo service for small wholesale-retail businesses (LOGI-BIZ, 2001;
Sagawa Express HP, 2012).
This flexibility is the core competence of Sagawa Express. In addition it is armed
with the customized power of a built in logistics system and information system
tailored to the needs of mail order companies and individuals. By the development of
the Internet, Sagawa Express widened their transaction system from B2B to B2C service.
They continue to strive to differentiate themselves from other companies by trying
to be more flexible and accommodating to the needs of their customers (LOGI-BIZ, 2006).
Internet sales introduce the problem that deliver requires the individual to be athome to receive the order (Kimoto et al., 2001). To solve this problem, network
construction was essential. Sagawa Express used the method to acquire trucking
companies in each region to construction its network (LOGI-BIZ, 2001).
As Sagawa extended their transaction system from B2B into B2C

method, it broadened

its range of network coverage at the same time. Sagawa was first in the industry toprovide the service of “e-collect.” By providing this flexible service, Sagawa tooka high market share of B2C that will increase in the future. Furthermore, it aims tobecome a total logistics enterprise as well as a courier trucking company.

3.3. Analysis of consumer transactions case
3.3.1 Features of consumer transactions

In this case, the features of C2C transaction method will be considered. The newlyborn trucking business Yamato Transport will be used as an example. This company
developed a courier service between individuals transaction in 1976. C2C is not fixedcompared to the B2B. In C2C parcels pick up location and delivery location are not
fixed. Furthermore, since individuals use the service, the quantity of transactions
is not frequent. Consequently this transaction system is very inefficient. However,even in this inefficiency the profit margin of personal home delivery is very high.
Collection costs to pick up the product are higher than courier companies using theB2B or B2C method. However, the delivery cost to deliver to the final addressee isalso the same as B2C. The pickup fee per package for C2C is about twice the fee of
B2C courier companies. As customers cannot haggle with the pickup fee in a C2C delivery
14

Supply Chain of the Transportation Industry and Network Building Strategy

system, the potential for profit is high. Moreover, compared to B2B, there is nodifference in profit in the off-season and prosperous period (Nippon Koa Sonpo, 2008;
Ogura, 1999).
As mentioned in part of the disadvantages of C2C, the origin of products is acontingent. Therefore C2C companies build networks on a national scale, and require
a lot of capital investment. However, contrary to the trading method of B2B, the profit
margin is higher in C2C. It is possible that C2C transaction companies can have sucha good nationwide circulation that overcomes the disadvantages aforementioned.
Currently, home delivery market of C2C is becoming saturated by causes such as
population decline. Thus presents a major issue of how to continue expanding thisbusiness in the future.

3.3.2 Yamato Holdings (Yamato Transport)

Yamato Transport Co., Ltd. is a transportation company that was founded by Yasuhiro
Ogawa in 1919. It completed a trucking network of scheduled and runs around the Kanto
region by 1936. However, long-haul truck transportation was improved after thedevelopment of Japan’s road system, and improvement in the quality of train tracks
in the late 1950s. The Yamato Transport used the railway for long-distance transport,
and trucks for short-distance transportation. In addition, since in the metropolitan
area like Tokyo, it had powerful customers such as department stores. Consequently,
it could not respond to the modal shift of the market environment, i.e. from train
to truck method of long-distance transport. It was behind its competitors inestablishing a network of transport and sales across the country. Therefore, byselecting the way of diversification as improvement measures, it aimed at integrated
logistics enterprises into the company. In terms of sales it was sluggish and stuck
to the acquisition of large cargo business-to-business. As a result, the income oftrucking commercial cargo deteriorated.
Masao Ogura who became president of Yamato Transport in 1971, conceived the projectto narrow down consumer transactions and smaller. However, this was thought to be adisadvantage until then. In addition, the origin, pickup location and delivery of
product are not fixed. Therefore it was believed that the revenue would be unstable.
15

Sugie・Park

Moreover, the profitability did not negate bad pickup incidence, so nobody entered
this market. However, by overcoming this disadvantage through establishing "agency
shops,”

YamatoTransport

broughtinnovation

to

the

businessoftrucking

transportation industry.
The scale of Yamato Transport’s nationwide delivery network and the strength ofthe collection force are the major differentiation from its competition. As a result
it has built up the #1 market share in the home delivery trucking business. The progressof Yamato Transport in the future is a challenge of how to continue growing in the
personal home delivery market, which is now saturated. It aims and is expected to become
a comprehensive logistics company in the B2B area, although it once failed in thiseffort after the war.

4. Result analysis
4.1 Comparison of the difference in transaction system

In this chapter, the difference in transaction systems is made clear through theanalysis of results. To show the features of network construction we analyzed four
items: 1) sales, 2) operating income, 3) number of locations and 4) average salary.
First, the difference between profitability and network construction is revealedby transaction method. Sales for each company in 2011 were as follows: one trillion
628 billion for Nippon Express, 248.4 billion for Fukuyama, 881.1 billion for Sagawa
Express and one trillion 260.8 billion for Yamato Transport. When it comes to sales,
it can be said that Nippon Express of B2B and Yamato Transport of C2C are very high.
Mainly, trucking business is a labor-intensive industry, so the ratio of the wage
cost is very high. For the domestic employees of each company, Nippon Express is about
60,006 people, Fukuyama Transporting is approximately 20,000 people, and Sagawa
Express is about 70 000 people. Comparing these four companies, it is clear that Yamato
Transport surpasses the others by an overwhelming amount, at about 170,007 people(Kaisha Shikihou, 2012).

16

Supply Chain of the Transportation Industry and Network Building Strategy

Figure 1. Sales of case firms

Figure 2. Number of employees of case firms

Average annual income of each company is about 5.85 million for Nippon Express.
Fukuyama

Transportingisapproximately

4.36

million.

YamatoTransportisapproximately 7.3 million (Sagawa Express is not listed, because there is no data)(Source: NenshuLab).

17

Sugie・Park

Figure 3. Average annual income of case firms

In terms of sales and cost of labor, there is a large difference between Yamato
Transport and Nippon Express. However, if we look at the operating income of companies
in 2011, Nippon Express was 37.4 billion, Fukuyama 13.5 billion, Sagawa Express 29.5
billion, and Yamato Transport 66.6 billion (KaishaShikihou, 2012).

Figure 4. Operating income of case firms

18Supply Chain of the Transportation Industry and Network Building Strategy

Compared to other companies, Yamato Transport pays the highest in wages. Yamato
Transport gained an exceptional operating profit. Analysis would show that it isrelated to the profit margin per product, based on its transaction method. Annual
product handling quantity of each company is as follows: Fukuyama of B2B is about 6250
million, Sagawa Express of B2C is about 13 billion, and Yamato Transport is set toabout 1.4 billion 20 million. Calculating unit price (sales / number) for each company,
Fukuyama is 382 yen, Sagawa Express is 678 yen, and Yamato Transport is the 888 yen.
And the profitability of one unit (Sales - cost of sales / Number), Fukuyama
Transporting Co., Ltd is 27 yen, Sagawa Express is 45 yen and Yamato Transport 68 yen.
There is no data in the annual number for Nippon Express, but it has a transaction
scheme of B2B method. Therefore it would have a similar profitability unit price of
Fukuyama. In addition, we can see near data (Pelican income / pelican service shipment
number) for the average unit price of Pelican in Nippon Express for 2007. This is about
496 yen (Source: Nippon Express home page).
From these analyses, the B2B transaction method has a low number of locations, andlow location cost, however profitability per product is very low. On the other hand,
C2C transaction method has a high wage and location building costs. However, it has
been able to generate a positive income from the high profitability per productcompared to the B2B. In terms of cost competitiveness, it is considered that there
is no great difference in each company’s profitability per product in the B2B.
Second, even in the same transaction, we found that the size of the network affects
the profitability. This paper compares the Fukuyama Transporting Co., Ltd. and Nippon
Express as a case of B2B. However Fukuyama profitability is higher than Nippon Express.
Even though Nippon Express has similar number of locations as Fukuyama, Fukuyama
reduced the size of the network per location. Furthermore, Fukuyama keeps a low
employee number per location. Therefore, the cost per person is low and their profit
margin is high.
Third, by comparing the cases in this paper, it is possible to give a suggestion
about the size of the optimal network from B2B to C2C transaction method. As of 2012,
Nippon Express has 782 locations (domestic 380 locations), Fukuyama Transporting has
383 locations, Sagawa Express has 382 locations, and Yamato has 6248 locations(LikuNabi, 2014).
19

Sugie・Park

Figure 5. Employee number per location of case firms

Number of locations that are denoted represents the locations of Yamato Transport.
However, Yamato Transport builds the agency shops, and as a result, it provides aservice to reduce the pickup fee by 100 yen, when the consumer brings the product in
the agency shop. There is no gap in the whole country, when we consider Yamato Transport
network coverage such as the agency shops. The initial agency locations were in liquor
stores, but in recent years these agency shops have moved into convenience stores suchas Family Mart and Seven-Eleven. Yamato Transport agency, has signed a partnershipwith Seven-Eleven store, which has the biggest number of domestic stores (14884 stores),and it has also signed a partnership with Family Mart (9320 stores). Compared to othertransaction method, Yamato Transport is building a vast network.
Comparing B2B, to C2C the unit price per order, C2C is about 500 yen higher than
B2B. Secondly, the profitability per unit increased about 40 yen than B2B. Also, it
has more than 6000 locations, which are about 20 times as many locations as B2C andB2B. From this fact, it is shown that C2C transaction method has created a high-priced
service as a result of undergoing a broad scale network construction. In addition,
it is possible to suggest that if it cannot undergo a broad scale network construction
it cannot make a profit through consumer transactions. It is easy for C2C companies
to enter "B to" including B 2B and B2C. From the point of view of a location network,20

Supply Chain of the Transportation Industry and Network Building Strategy

B2B cannot enter C2C and B2C. Therefore, there exists an entry barrier to network
construction capability. Yamato Transport has sought to establish a home delivery
system as network business and built organizational capability to realize it.

Figure 6. Number of locations of case firms

As mentioned above, in order to break through the downturn in the transportationindustry competition, Masao Ogura decided to advance towards the individual homedelivery business. This was to overturn the common sense of the mailing industry. In
the transport industry at the time, it was thought that home delivery business andtargeting individual customers was not profitable. However, in order to capture the
network business similar to the telephone company, the individual home delivery
business built a collection and delivery network nationwide (Amikura and Shintaku,2011). It was costly to build the initial network in the network business, but building
the network will later generate revenues that will cover the small initial deficit.
However, profit will occur through the increased utilization of the growing network
once it is in place. For collection and delivery network construction of retail homedelivery market, Masao Ogura called the demand for individual home delivery fee. Goods
are received at locations called "depots". Goods are collected from and delivered toeach household by small cars, and allowed to aggregate in a center, as a collectionof local sales offices (Ogura, 1999). Products in the same area are delivered between
centers, and products going towards other regions were carried to a location for21

Sugie・Park

service car to pick up. Then they are brought to one place (base). There is at least
one in each prefecture. Delivery is made via heavy-duty trucks every night to theirdestinations. Like "Herb-and-spoke" system of the airline, if a collection anddelivery network is built on a national scale, Yamato Transport network could provide
mechanisms of next day delivery services with a constant cost (Amikura and Shintaku,2011). It was a postal parcel that already built a network of nationwide; however,in order to compete with this, it planned for all parcels to be delivered to the next
day as a general rule. With the exception of long-distance block, it adopted a flat
rate of 500 yen as fare. Moreover, for the convenience of the user, it built agency
stores such as a rice shop and liquor store which are close to living places. In orderto enhance the service, it has also provided the best services such as a thorougheducation of drivers and delivery being at home and developed its own information
system to manage a consistent process of all services including collection,transportation and delivery. Looking at the success of Yamato Transport in the 1980s,
more than 30 companies entered the private home delivery business. However, rival
companies that did not build the organizational capabilities of the network businessand superficially imitated Yamato Transport system. As a result, they failed in network
construction which is required for the courier business (Amikura and Shintaku, 2011).
From the perspective of organizational capability in network building of Yamato
Transport, it seems that it is extremely difficult for B2B firms to enter B2C or C2C
transaction method.
On the other hand, the most powerful rival of C2C will still be a postal businessfor Yamato Transport. It took 4 to 5 days to deliver, if using the postal parcel by
mid-point 1970s. However, postal services also strengthen the home delivery businessand are becoming competitive compared to previous times. Moreover, the number of post
offices is more than that of the Yamato Transport. In this sense, it might be a toughrival for Yamato Transport, which does C2C business (number of Japan Post, post office)is estimated to be about 24700 stations domestic (Wikipedia, 2013).

5. Conclusions

It is said that if B2B can have a contract with big consignor companies, it can make22

Supply Chain of the Transportation Industry and Network Building Strategy

steady income. However, it is a transaction method, which is easy to be significantly
affected by global economic fluctuations. If global economy shrinks, sales of trucking
business also will not grow. Therefore, an issue of B2B in the future is how it tosave costs. Compared to other transaction systems, it is comparatively easy for B2B
to build an optimal network, as a result, it is possible to achieve cost savings. It
is determined from where to where cargos move in advance, unless those are urgent.
By building a simulation system, it takes the statistical data and increases theefficiency concerning where to build a location and how to do the delivery route. Hence,
it leads to cost reduction.
As it is easy for B2B to be affected by a change of global economy, it seems that
C2C is impacted by that of personal income. Different from B2B, as it is not shown
from where to where the products to carry in the case of C2C, it is very difficult
to take the statistics. As a result, there is a need for significant investments in
network construction. However, as there is no discount requirement from the consignors
and unit price per product is high, so profitability is very high. This result canbe demonstrated through the financial situation of Yamato Holdings. Yamato Holdings
also enters B2C at present, as well as C2C which is saturated, utilizing built networks,
thus it is possible to increase serviceability.
On the other hand, B2C is easy to comparatively take statistics. It is the combined
network construction of B2B and C2C. Delivery amount of B2C will increase in the futureby expansion of the Internet business. For any trucking companies also try to get a
steady income in B2C through contracts with the major consignor companies, competition
will be intensified. However, due to the products of free shipping by the Internet
business, cargo delivery revenues can be diminished. In addition, since companies thathave mainly done B2B, take into account the delivery of "to C" in the future, it isnecessary to expand location network building.
Finally, in order to achieve the supply chain management for consignors companies
in case of B2B or B2C, it is necessary to respond flexibly to logistics operations
tailored to each consignor. By using a network construction considering transaction
systems, it is challenging for trucking business that will be collection and deliveryof cargo without waste and just-in-delivery.
It is necessary that companies build "3PL" tailored to individual enterprises and23

Sugie・Park

consider production and sales department, and the logistics sector at the same level.
Consequently, it will lead to supply chain cost reduction. If a company builds a network
to meet the challenges of their shippers and companies by performing simulations using
IT systems, it will be able to cover any transaction methods and advance into a dominantposition than other companies.

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